Here are some things I think I am thinking about: T-Bonds, Consumerism & Factor Investing…

1 – Why are T-Bonds the safe haven asset?  As the markets have gotten jittery we’re once again seeing Treasury Bonds perform very well in both nominal and risk adjusted terms. I’ve noted this repeatedly over the years based on a rather simple point that, interestingly, is now finding some empirical support in academia. In a fantastic new paper titled “What Makes US Government Bonds Safe Assets” Zhiguo He, Arvind Krishnamurthy and Konstantin Milbradt find:

“US government bonds are widely considered to be the world’s safe store of value. US government bonds are a large fraction of safe asset portfolios, such as the porfolios of many central banks. The world demand for safe assets leads to low yields on US Treasury bonds. During periods of economic turmoil, such as the events of 2008, these yields fall even further. Moreover, despite the fact that US government debt has risen substantially relative to US GDP over the last decade, US government bond yields have not risen. What makes US government bonds “safe assets”? Our answer in short is that safe asset investors have nowhere else to go but invest in US government bonds.”[emphasis added]

Exactly. All outstanding financial assets are always held by someone. And when the you-know-what hits the fan, safe asset allocators inevitably bid up T-Bonds because they’re the the highest quality financial instrument in a world where all outstanding financial instruments have to be held.

2 – All Hail Consumerism!  I see a growing trend, especially in younger generations, towards thriftiness and the rejection of consumerism. Which reminds me of this wonderful piece from 16 years ago, “In Praise of Consumerism” by James Twitchell.  From a macro perspective the most basic takeaway is that consumers just consume what producers produce. In other words, to reject consumerism is to reject producerism (is that a word, no idea, but pretty sure no). But production is what makes humans awesome. We produce wonderful things for one another using our unique talents to make our living standards superior.